March 4, 2021

Coin Tastic

Business Managements for you

This is the web version of Data Sheet, a daily newsletter on the business of tech....

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Fortune’s quarterly investment package came out this week and it’s filled with stories about tech.

That’s probably not surprising given that tech stocks have been surging for a while now. The S&P 500’s tech sector gained 44% last year versus 18% for the overall index. Collectively, the big six–Apple, Microsoft, Amazon, Google, Tesla, and Facebook–are now worth over $8 trillion. To some it’s an obvious bubble, to others a logical response to the winners of the year of COVID.

With tech’s big sway in the stock market, I’m benefitting indirectly and so are you, most likely. All of my investments are in mutual funds, mainly low-cost index funds, and they’re topped up with the big six and other tech high-flyers.

Well, not exactly all of my investments. About two months ago, I was using the PayPal app to pay for something or other, probably a bag of coffee beans I saw on Instagram, when I noticed that the company’s promised digital currency exchange had gone live. Right from the app, with a just a few taps, I could buy and sell Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. This new level of exposure to the general public and ease in buying seemed likely to push prices higher, I reasoned. So I bought a small mixed basket of crypto…and watched it start to go up.

A week in, I was bragging to the family about my success and noting that the power of compounding my 10% gain–if annualized over a whole year–would make us rich. I was prompted to put slightly more money at play, say enough to buy a family of five dinner at one of Boston’s finest restaurants with drinks, dessert, and a healthy tip.

PayPal must be thrilled with the response to its crypto addition, because I started checking the app at least once a day. And off to the races we went. At the recent peak of Bitcoin’s price of almost $42,000 at the beginning of January, I was close to tripling my investment.

Money aside, this was more about entertainment and bragging rights than a serious foray in digital currencies, an offshoot of how fellow newsletter scribe Matt Levine calls the stock market a “fun casino.” So I had no interest in selling. Bitcoin’s recent drop has hit my PayPal casino of fun too. I’ve now only doubled my money. Maybe I should have listened to astrologer/bitcoin strategist Maren Altman?

Among more serious investors remains the more serious question: Should you add Bitcoin to your portfolio in 2021? As one of the best journalists out there covering crypto, Robert was on the case for another story in our investing package.

There has long been a strategy for investing in assets that will thrive in bad times. When all your stocks are going down, Treasury bonds, foreign currencies, and gold can provide you with a safety cushion. Could bitcoin do the same? Is the ultimately capped number of total bitcoins that can ever be mined a hedge against the Federal Reserve’s seemingly infinite ability to mint more dollars? Robert offers both sides of the debate, though a recent analysis by JPMorgan Chase strategists John Normand and Federico Manicardi came down firmly with the skeptics. Bitcoin is the “least reliable hedge during periods of acute market stress,” they wrote, alas.

Still, I have a pretty great seat in the fun casino. Have some fun this weekend and we’ll see you here Monday.

Aaron Pressman
@ampressman
[email protected]

Next Wednesday, January 27, at 11 a.m. ET, Fortune is hosting a CIO roundtable on the topic of COVID and the cloud, accelerating the conversion and finding value, with Accenture CIO Penelope Prett and Zoom Global CIO Harry Moseley. The event is by invitation only and we are almost at capacity, but you can sign up for consideration.

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